Antigua files injunction against American overkill

While the jurisdiction of the United States government over BETonSPORTS is questionable, by virtue of being the holder of an Interactive Gaming and Interactive Wagering license issued by the Antiguan and Barbudan authorities, BETonSPORTS has acquiesced to our International jurisdiction over the company and its assets. It is important for the protection of consumers that whatever assets BETonSPORTS has remaining be properly available to depositors and other creditors and not be dissipated on fines or penalties or otherwise improperly disposed - Kaye McDonald, the Director of Gaming for the Financial Services Regulatory Commission of Antigua - Caribbean360.com

The fallout from the US's online gambling crackdown continues to harm those the country holds most dear - its citizens. Most recently, a legal war that stems from the collapse of Betonsports.com has broken out, stretching from New York to Missouri and then right down to Costa Rica and Antigua. The only victors in this mess will be press-hungry lawyers - not the Americans who've possibly seen billions of their dollars vanish.

In an attempt reassert sovereignty against the United States, the government of Antigua filed an injunction last week against the remains of BetonSports.com, the company that collapsed this summer after an indictment by American authorities. Betonsports.com reached an agreement with the American Department of Justice recently to try to repatriate money owed to American customers. Much of the money in question, however, allegedly resides in Antiguan accounts.

Most of BetonSports’ American-facing operations operated out of an Antiguan affiliate, and in an attempt to stop the financial hemorrhaging associated with the Betonsports fiasco, Antigua took swift legal action to prevent any more money from being moved out of BOS’s Antiguan accounts. Antigua’s trade disputes with the United States have been documented here already, and now the prospect of the DOJ reaching a legal settlement covering assets under Antiguan jurisdiction, without any input whatsoever from the Antiguan authorities, has proved to be a bit much for little Antigua to swallow.

After all, Antigua has bent over backwards in the past to please American authorities, only to see its share of the online gaming market whither.

Cry for me Antigua

Antiguan authorities always held themselves to a high standard when it came to regulating the online gaming market, and in the few months since the arrest of David Carruthers, the former CEO of BetonSports, they have stood by and watched as American justice blindly pummels another established Antiguan provider.

The once-shining company is in tatters, and irate customers, mostly Americans, wait in vain to claim accounts owed. BetonSports.com formally agreed to freeze the accounts in November after reaching an agreement with the American Department of Justice. The entire episode casts an unsparing light on the American approach of prohibiting online gaming in its entirety, rather than regulating the industry into submission.

The Antiguans aren’t alone in this. Europeans have moved toward a regulatory approach to minimize the risks of online gaming - Italy and Spain recently jumped on the regulatory bandwagon spearheaded by Britain and Ireland. This leaves the American zero tolerance approach looking ridiculous and ineffectual, not to mention isolating. And certainly in the case of the BetonSports debacle - where Americans accounted for 98 per cent of the customers - Americans will ultimately pay the price.

The BetonSports fiasco provides a nice case study of how over-zealous police action often harms most those it ostensibly protects. It all started back in July with Carruthers’ surprise arrest at the Dallas airport while waiting for a connecting flight from London to Costa Rica. Adrenaline flowing, a freshly unsealed indictment in hand, federal marshals dragged a respected member of the online gaming community out of the airport in cuffs. A press conference naturally followed, with indictments for the usual conspiracy, tax and wire fraud charges unsealed against 10 others in BetonSports management.

This was no fly by night operation. Listed on the London Stock Exchange, and counting American financial icons Morgan Stanley, Goldman Sachs, and Fidelity as major investors, BetonSports did not at first blush appear to be the kind of company the DOJ should be targeting, when other, less savory, targets lurked within the online gaming community. After all, BetonSports paid its bets as advertised, which is all that really mattered to the gambling public.

Bet on home detention

No harm, no foul, right?

Not exactly.

Founder and principal shareholder Gary Kaplan, a onetime bookie in New York, was already on the federal radar due to a 1993 arrest in New York on a variety of bookmaking related charges. The indictment does not make clear whether he was actually convicted of anything, but regardless, DOJ already had the scent. All they needed was a little motivation.

For his part Carruthers did not earn any allies in the American government by repeatedly pointing out that prohibition would leave the industry in the clutches of its least savory elements - not to mention putting money in the pockets of riverboat casino operators in the Eastern District of Missouri, where he would later be indicted.

The Chinese have a saying, “the nail that stands up gets hammered down.” Carruthers, in his efforts to put a smiling, legitimate face on the industry through syndicated columns, appearances on American television, and interviews with American media, became that nail. However, the former midlevel casino manager from Scotland would prove more prescient than anybody in the DOJ would like to admit - certainly not with a gag order in effect.

In a purely legal sense, the US Attorney for the Eastern District of Missouri will almost assuredly succeed in its criminal case against Carruthers, et al; after all, the DOJ has yet to lose a criminal case involving online gaming. However, from the regulatory perspective - the one that concerns itself with practical public policy rather than policing public morals – the case is in shambles.

The US Attorney's office filed a civil lawsuit in conjunction with the criminal case, and although the DOJ and the company reached an agreement regarding the suspension of business activity with the US, none of the money owed to American players can be found. The US Attorney's office is fielding calls on a daily basis from angry players trying to recover their cash, according to trade publication Gambling911.com.

Exactly where the BetonSports customers' money ended up is anyone's guess with no clear path existing from the payment processors to other parties. Indeed, it seems unlikely that anyone will recover anything out of the millions - billions if you believe the DOJ - owed to players and possibly American taxpayers. (We're talking about a company with yearly revenues of $1.6bn in 2003 alone, and an indictment that seeks forfeiture of $4.5bn.)

Since the company has essentially been driven into bankruptcy by the aggressive prosecution and subsequent gambling legislation, its stock is frozen, and it would be near impossible for it to raise money in the capital markets to pay its debts. That leaves selling off company assets as the most attractive way out of this for those holding the bag.

Well, they better move fast.

According to Gambling911 insider Christopher Costigan, BetonSports.com recently liquidated its luxurious Costa Rican headquarters to help pay the salaries of laid off staff - at 15 per cent of salary owed. Meanwhile, Operations Manager Clive Archer and board member Richard Creed have been seen at gambling conferences in Europe, talking about Carruthers' role in BetonSports' downfall.

Which brings us back to all that missing money - just where did it go, and what does American regulation have to do with it?

As always when things become criminalized, rather than merely regulated and controlled, it went underground.

Show me the money

After the passage of the Patriot Act, financial transactions were coded to make it easier for the American government to classify and track potentially suspect capital flows. A perverse byproduct of this part of the law (which was designed to track terrorist financing) was that industries in legal limbo like gambling that didn't want to endanger their clients under American law turned to unregulated payment processors - who, it turns out, are mostly located in the Middle East. Costigan also reported in an email to El Reg that some money could be tied up with marketing affiliates, who refuse to give it back. However, none of that explains what happens to the deposits that originally belonged to Betonsports customers.

And that brings us full circle to the Antigua problem. Although BetonSports was listed in London and had its operational headquarters in Costa Rica, most of the American action that is the subject of the indictments went through its affiliate, BOS Antigua, which is why Antiguan authorities stepped in with an injunction of their own last week. The Financial Services Regulatory Commission of Antigua (FSRC) noted the apparent chaos surrounding customers' accounts and sought to remind the juggernaut to the north that Antigua retained jurisdiction over BetonSports' Antiguan operations.

Mr. Lebrecht Hesse, the Chairman of the FSRC, stated that "we believe that the United States should step aside and ensure that our regulators can enforce and oversee the application of the laws of Antigua and Barbuda to the orderly dissolution of BetonSports. We are disappointed that the United States efforts to prohibit cross-border competition in gambling and betting services have led to the disruption of a once-healthy and robust service provider, but we are just as adamant that our jurisdiction be respected in the interests of consumers and others."

Currently, the Carruthers case is in the discovery phase of the trial, which in the American system is when parties exchange evidence. That phase will not end until late January at the earliest, and it could well drag on longer than that, due to the complexity of the case and the difficulty tracking some of the capital flows through some of the less scrupulous payment processors. Furthermore, the gag order has allowed the US Attorney’s office to avoid fielding nasty questions about how much if any is left for account holders. To what extent the British holding company BetonSports PLC may be held liable as the mothership connection for this mess has yet to be even discussed.

Through it all, David Carruthers, once the respectable hood ornament of the industry, has remained the scapegoat for American prosecutorial zeal. Fired from his position as CEO after his arrest, the former Ladbrokes man remains in home detention in St. Louis, awaiting trial.

On the home front, American institutional investors like Goldman Sachs or Morgan Stanley will be insulated from any liability due to their lowly shareholder status.

Gary Kaplan, the New York bookie who founded the company and remains its largest shareholder, is nowhere to be found.

And what happens now that the DOJ has taken a legitimate corporation and reduced it to fugitive status? Will players who were previously paid without a hitch get anything back at all? With the former board of directors apparently partying it up across Europe, and much of the money now in the Middle East, good luck. We wouldn't bet on it. ®